Tax credits seen as boost to N.H. film industry

New Hampshire is one of five states in the country that don’t offer any sort of incentive for movie producers

By Kathleen Callahan

Published: February 21, 2013

Josh Brolin and Kate Winslet, stars of the upcoming film ‘Labor Day,’ filmed a scene at Canobie Lake Park in Salem last summer.

On a Friday morning last August, Canobie Lake Park in Salem opened its gates hours before the late-summer crowd descended to allow Kate Winslet and Josh Brolin to ride the tea cups.

The actors were filming a scene for “Labor Day,” a movie directed by Jason Reitman, based on the novel of the same name by New Hampshire native Joyce Maynard. It’s set in the fictional small town of Holton Mills, N.H.

But, except for the one-day shoot in Salem, the movie with deep Granite State connections was filmed in Massachusetts, because -- like most states -- it offers filmmakers generous incentives for filming within its borders.

“That was a New Hampshire story, by a New Hampshire author, about New Hampshire. That was our movie, and it went somewhere else to pretend it was New Hampshire only to take advantage of those incentives,” said Matt Newton, director of the New Hampshire Film & Television Office, a state agency that promotes the state as a filming destination.

Had it been filmed in the state, the fiscal impact could have been significant, said Newton.

According to a Boston Globe article, the filmmakers spent $7.5 million to hire 300 local residents for jobs on the set and another $5.6 million on housing, permits and equipment rentals. That adds up to “$13 million that we lost,” said Newton.

New Hampshire is one of five states in the country that don’t offer any sort of incentive for movie producers, according to the National Conference of State Legislatures. But that could change if House Bill 540, sponsored by Rep. Jeffrey Goley, D-Hillsborough, is approved this legislative session. It would establish a credit against the business profits tax for motion picture production expenditures in New Hampshire.

“Do I think it’ll help? Yeah, because we’ve lost a number of projects to a number of states that have progressive tax credits,” said Newton, pointing as another example to “Grownups 2”, starring New Hampshire’s native son, Adam Sandler.

The move also was filmed in Massachusetts, but when Sandler wanted to feature Manchester’s Red Arrow Diner in the movie, the production actually built a replica of the diner in Marblehead, Mass. instead of filming in New Hampshire.

The first question Newton fields from most producers scouting the Granite State? “What are your incentives?”

“It’s not about location any more,” he said. “It’s about the bottom line.”

‘Not a lot’

The movie industry hasn’t always been so reliant on these incentives -- which can take the form of tax credits, rebates or waivers -- because, up until about a decade ago, they hardly even existed.

They first started gaining popularity around the turn of the century, in response to filmmakers moving production out of the country and overseas to cut production costs.

In 1997, Canada introduced its own incentive program, which helped turned cities like Vancouver and Toronto into northern film capitals where movies could plausibly look like they’d been set in the U.S.

To try to rein in the runaway industry, a few states began offering tax incentives of their own. Once that happened, “it exploded,” said Newton.

According to the Tax Foundation, only five states offered film subsidies in 2002; by 2010, 44 did, hoping to bring in film crews that would not only hire local people, stay in local hotels, eat at local restaurants and buy goods locally, but make movies that showcase their state as a tourism destination.

When the tax incentives first began popping up, New Hampshire could still market its generally low tax burden -- no sales tax or personal income tax -- as selling points to filmmakers considering the state, said Newton. But as competition to attract major motion pictures grew fiercer among states -- leading many to waive sales tax and otherwise boost their incentives -- these attributes no longer seemed as attractive, said Newton.

As it stands now, New Hampshire doesn’t have a very robust filmmaking industry. Last year, despite a bump from the movie “In Your Eyes” -- a film written by cult hero Joss Whedon that was filmed in Claremont, Exeter, Bedford, Amherst and Windham -- the economic impact of film production in the state was about $1.1 million, estimated Newton.

“It’s not a lot,” he said.

Most of the money that comes in is for small cable shoots that only last a few days, and their expenditures have dropped as technology becomes more compact, he said.

Credit details

Recognizing the unlikelihood that New Hampshire will ever become Hollywood East, the film office has been trying to court smaller, lower-budget independent films as opposed to multimillion-dollar blockbusters.

“There’s this misconception out there that these tax credits are just for Hollywood,” said Newton. A well-crafted incentive that complements that strategy -- aimed at bringing in more movies like “Labor Day” and “In Your Eyes” -- could be “a game-changer,” he said.

New Hampshire, after all, offers a similar pitch to filmmakers as it does to the young professionals it wishes to keep in the state: It has the ocean, mountains, small cities and quaint New England town centers, all within a few hours’ drive of one another.

Helping to make that pitch is the New Hampshire Production Coalition. A relatively new entertainment and media industry group that represents filmmakers, students, laborers, actors, producers and other creative stakeholders, the group aims to give a united voice and lobby for the film and TV production industry in the state.

One of its first orders of business has been to introduce legislation that would establish a credit against the business profits tax for motion picture expenditures in the state.

The bill was heard Feb. 5 before the House Ways and Means committee.

Timothy Egan, a Sugar Hill resident and president of the coalition, said the tax credits would stimulate the state’s production industry, creating new jobs and making it a more attractive place for state college students interested in media production to stay after graduation.

As proposed, any production company that incurred at least $50,000 in aggregate payroll expenses in New Hampshire would be eligible for a 25 percent tax credit against the BPT. (Salaries above $2 million would not be ineligible for the credit, essentially so the state would not end up subsidizing the multimillion-dollar salary of an A-list actor.)

The 25 percent credit against the BPT would also extend to qualified New Hampshire production costs and non-New Hampshire expenses if one of two criteria is met: If New Hampshire expenses exceed 50 percent of the total production expenses, or if at least half of the filming takes place in the state.

As proposed, the credits would be refundable and transferable, and unused BPT credits could be carried over and applied to reduce a business enterprise tax bill.

The legislation would not establish a cap on the dollar amount of tax credits that could be issued.

“People might say, ‘You’re giving away tax revenues.’ (But) right now, we’re not seeing any revenue at all,” said Egan. “We may have to offer something to get folks to come here, but it’s not business that is already here. I’m not helping anyone to give a tax credit to an existing industry and take revenue out of the state coffers … this is business that’s out there and we’re not getting because we’re not saying ‘We want you.’”

Revenue concerns

Rep. Susan Almy, D-Lebanon, chair of the Ways and Means Committee, sees that argument as flawed.

Because the credits would be transferable, a filmmaker who came to the state and received a $5 million tax credit could turn around and sell that to a bank or a large company, which could use the credit against their revenues and owe less to the state.

“Our state revenues are in extremely fragile shape,” said Almy. “We can’t afford to cut them.”

There is also a constitutional question over whether legislation is allowed to favor one type of business over another, she said.

Many people have worked on the bill over the past few years, said Newton, including tax attorneys, who have used bits and pieces from different states’ incentive programs to craft the New Hampshire legislation.

That’s another of Almy’s concerns. “I think that they’re just adopting business plans that were developed for other states that have much more resources than we do, and they have to think seriously about what are the kind of credits that we would be able to afford,” she said.

Plus, lawmakers have other tax credit legislation to consider this session -- the long-sought doubling of the R&D tax credit from $1 million to $2 million, the possible repeal of the education tax credit -- at a time when budget coffers are already tight. Thus giving uncapped tax breaks to the entertainment industry is hardly a legislative priority.

The committee was scheduled to vote on the status of the bill the third week of February.

Though he finds it quite unlikely that the bill will win approval this year, Newton is glad that the topic is now being discussed in New Hampshire.

“I think that this bill is in the right direction,” said Newton. “I do think that there needs to be work between the coalition and the industry and the lawmakers so everybody feels comfortable with doing what’s right for New Hampshire.”

Bringing more films into the state could have a long-term positive impact on tourism, he said. Just ask the businesses around Squam Lake that have benefited for 30 years from their association with the Oscar-winning “On Golden Pond.”

“That’s the impact that a film can have.”

This article appears in the February 22 2013 issue of New Hampshire Business Review